Confusion over pension reforms

6 Sep 11

Some businesses still do not understand the pension reforms due to start next year.

A Pension Trends survey from the Association of Consulting Actuaries (ACA) has found that at least two thirds of employers that are not currently offering a pension scheme say they are unlikely to auto-enrol employees into either NEST or an employer's scheme when the reforms come in.

This suggests that these employers have not grasped the full extent of their responsibilities under auto-enrolment, which is being phased in over four years and is due to start in October 2012.

Under the reforms, all employers will be legally obliged to:

• Automatically enrol certain workers into a pension scheme• Make contributions on their workers behalf• Register with the Pensions Regulator• Provide workers with certain information about the changes and how they will affect them.

Once automatically enrolled, employees will be able to opt-out of the pension scheme that is on offer. According to the survey 33 - 39 per cent of smaller businesses are predicting, and relying on large numbers of staff opting out, thus reducing the costs.

Commenting, ACA chairman, Stuart Southall said: "With contribution rates into many schemes failing to keep pace with the pension costs of longer life spans, and with employers expecting, and in some cases relying upon high anticipated levels of pension opting-out for budgetary purposes to keep their auto-enrolment costs down, warning bells are ringing."

In an attempt to combat this inertia, The Pensions Regulator launched a set of online interactive tools in July. Commenting, and recognising the potential dangers to smaller business, Minister for pensions, Steve Webb said:

"We know that easing burdens on small employers will be key to making automatic enrolment a success. That is why I'm very pleased that the regulator's new tools will be a simple and practical way for small businesses to learn about their duties."

Bill Galvin, chief executive of the regulator added: "Automatic enrolment will not affect the bulk of small businesses until 2015 or 16. We nevertheless urge all employers to take some time right now to look up their automatic enrolment duty date so that they know when the new law will apply to them."